The Differences Between Supply Side and Demand Side Economics
What is the best way to stimulate an economy? Is it best to lower taxes or increase wages, both or neither? These are questions which both Democrat and Republican politicians debate in the course of attempting to determine the best path for growing the U.S. economy. For the most part, Republicans are prone towards supply side economics or Reaganomics. On the other hand Democrats seem to want to balance the purchasing power by driving demand through raises in minimum wage and other government stimulus instruments and legislation. This hub takes a brief look at both supply side and demand side economic theories.
Supply Side Economic Theory
Supply side economics is the type of economic theory espoused by Ronald Reagan and most in the Republican party. Supply side theory is aimed at increasing the supply of goods and services available to consumers. The idea behind this economic theory is that if you keep corporate taxes down then businesses will have more money to spend on research and development of new products and services. The wider the variety of offered products and services the more apt consumers will find something that they think they need or want. Apple's I-series products are examples of creating new demand by producing an innovative supply of new goods and services. The greatest danger of supply side economic theory is long-term deficits which will weigh heavily on the future economy.
Demand Side Economics
The opposite of supply side economics is demand side economics. Demand side economics is all about increasing demand in the consumer. This has been referred to as Keynesian economics. The idea here is that the quickest way to spur demand is to increase the relative wealth of the people who want to make purchases. This theory is mostly espoused by liberal Democrats who want to redistribute wealth by taking extra income taxes from corporations and the rich in order to redistribute it to the middle class and poor. Two ways to increase demand are to create jobs and raise minimum wages. Tax rebates and tax cuts are two other ways to increase discretionary funds to drive consumer spending. One danger of too much consumer demand is inflation.